How to Calculate Invested Capital

by Ryan Menezes

Companies invite new capital investment by issuing new stock to investors. In exchange for the equity they contribute, new investors receive a portion of the company's future profits, shares that may rise in value, and voting rights along with other stockholders. Calculate the amount of capital that an offering generates from data available on the company's earnings statement. These figures include the company's earnings per share, which describes the size of dividends that shares will receive, and the company's net income.

1. Divide the net income available to common stockholders by the earnings per share after the offering. For example, if the company makes \$500,000 available to shareholders, who then receive \$5 per share, divide \$500,000 by \$5 to get 100,000. This is the total number of outstanding shares.

2. Divide the company's net income to common stockholders by the earnings per share before the offering. For example, if investors formerly received \$8 per share at the same income, divide \$500,000 by \$8 to get 62,500, the number of shares issued before the stock dilution.

3. Subtract the shares issued before the new offering from the total number of shares. With this example, subtract 62,500 from 100,000, giving 37,500. This is the number of shares the company issued through the offering.

4. Multiply this number of shares by the price that the company offered for the shares. For example, if the company offered the shares for \$25 each, multiply 37,500 by \$25 to get 937,500. This is the amount of capital invested during the offering.